Harvey Throws Energy Market Into Disarray


 

Gasoline has hit a new two year high as Harvey’s impact on refineries is assessed. The largest oil refinery in the US, Motiva Enterprises LLC’s Port Arthur refinery, began shutting down on Wednesday, gradually reducing capacity to 40 percent, as Harvey made its way inland over Southwestern Louisiana. Oil market analysts have projected that ~20 percent of the country’s capacity to refine crude oil into gasoline and other fuels were not operating on Wednesday. On Tuesday there were only a few reports of serious damage to refineries, but flooding and even more rain has prevented workers from being able to reach some facilities.

According to S&P Global Platts, thirteen oil refineries are currently offline due to Harvey, with flooding having knocked out around a fifth of the nation’s refining capacity. The distribution of crude and products on pipelines has also be affected.

Late Wednesday, Colonial Pipeline announced that their line carrying diesel and jet fuel would be shut down, followed by its gasoline line on Thursday. Colonial Pipeline is the United States’ biggest single fuel transporter, shipping more than 2.5 million barrels a day; roughly one out of every eight barrels of fuel consumers around the country. Colonial has supplied much of the fuel in the New York, Washington DC, and Atlanta markets since the closure of less profitable refineries in the region in the past decade. Colonial’s pipeline has two main lines that transport more than 100 million gallons of gasoline and other fuels; extending 5,500 miles starting in Houston and ending at the New York Harbor.

“Once Colonial is able to ensure that its facilities are safe to operate and refiners in Lake Charles and points east have the ability to move product to Colonial, our system will resume operations,” the company said.

Chicago fuel distributer Olson Service Company purchased a significant amount of fuel in anticipation of potential shortages and price increases. Olson is said to usually keep their fuel tanks, which store 150,000 gallons, 60 percent full, but has increased stored fuel to 80-90 percent of capacity.

While some refineries continue to suspend operations, others have begun to restart. Valero has said startup for its Three Rivers refinery, and its Corpus Christi plant, was underway. Marathon Petroleum Corp’s stated that they intend to restart operation of their plant in Galveston bay and refinery in Texas City by Thursday.

It is currently unclear how long it will take to repair and restart closed refineries, as many refiners have yet to assess the damage they have sustained. It’s been reported that Houston plants look to have suffered minimal damage, but have been producing very few products because of their lack of access to oil. When Hurricane Katrina struck in 2005, knocking out ~30 percent of US refining capacity, it took 1-2 months for refineries to return to normal production.

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